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End of Service Benefits

Provisions for gratuity payments and other end-of-service benefits for employees in the UAE.

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Comprehensive Guide to End of Service Benefits in the United Arab Emirates (UAE)

End of Service Benefits (EOSB), also referred to as gratuity, are a statutory entitlement for employees in the UAE under the UAE Labour Law. These benefits are designed to provide financial compensation to employees upon the termination of their employment, provided they meet certain eligibility criteria. Below is a detailed guide covering the legal framework, calculation methods, procedures, and key considerations for both employees and employers.

1. Legal Framework

The regulations governing End of Service Benefits in the UAE are primarily outlined in:

  • Federal Decree-Law No. 33 of 2021 on the Regulation of Labour Relations (commonly referred to as the UAE Labour Law).
  • Cabinet Resolution No. 1 of 2022 (which provides further clarity on the implementation of the Labour Law).

These laws apply to employees in the private sector under the jurisdiction of the Ministry of Human Resources and Emiratisation (MOHRE). Employees working in free zones are also entitled to EOSB, but specific free zones may have additional rules or variations.

2. Eligibility for End of Service Benefits

To qualify for EOSB, the following conditions must be met:

  • The employee must have completed at least one year of continuous service with the employer.
  • The termination of employment must not be due to gross misconduct (as defined under Article 44 of the Labour Law).
  • EOSB applies to both limited-term and unlimited-term contracts.

Exclusions

  • Employees under pension schemes (e.g., UAE nationals enrolled in the General Pension and Social Security Authority) are not entitled to EOSB, as they contribute to a pension fund.
  • Workers employed on a daily wage basis are subject to different rules for gratuity calculation.

3. Calculation of End of Service Benefits

The EOSB is calculated based on the employee's basic salary (excluding allowances such as housing, transportation, and other benefits). The calculation depends on the length of service and the reason for termination.

Standard Calculation Formula

  1. First 5 Years of Service:
    • 21 days of basic salary for each year of service.
  2. Beyond 5 Years of Service:
    • 30 days of basic salary for each additional year of service.

Example Calculation

  • Basic Salary: AED 10,000
  • Years of Service: 7 years
    • For the first 5 years: ( 21 , \text{days} \times 5 , \text{years} = 105 , \text{days} )
    • For the next 2 years: ( 30 , \text{days} \times 2 , \text{years} = 60 , \text{days} )
    • Total: ( 105 + 60 = 165 , \text{days of basic salary} )
    • Gratuity: ( \frac{10,000}{30} \times 165 = AED 55,000 )

Pro-Rata Calculation

If the employee has not completed a full year of service, they are not entitled to EOSB. However, for partial years beyond the first year, gratuity is calculated on a pro-rata basis.

4. Deductions and Forfeiture

  • Resignation Before 5 Years: Employees who resign before completing 5 years of service are entitled to EOSB, but the amount may be reduced depending on the length of service.
  • Termination for Gross Misconduct: If an employee is terminated for reasons such as fraud, breach of trust, or other misconduct (as per Article 44), they forfeit their EOSB.
  • Outstanding Liabilities: Employers may deduct any outstanding amounts owed by the employee (e.g., loans, advances) from the EOSB.

5. Payment Timeline

Employers are required to pay the EOSB within 14 days of the employee's last working day. Delays in payment may result in penalties or legal action.

6. Special Considerations

Free Zones

While the general principles of EOSB apply across the UAE, some free zones (e.g., Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM)) have their own employment laws. For example:

  • DIFC and ADGM have introduced qualifying schemes (e.g., DIFC Employee Workplace Savings (DEWS)) as an alternative to gratuity payments. Employers contribute monthly to these schemes, and employees receive the accumulated amount upon termination.

Part-Time Employees

Part-time employees are entitled to EOSB on a pro-rata basis, calculated based on the actual hours worked.

Domestic Workers

Domestic workers (e.g., nannies, drivers, housekeepers) are covered under Federal Law No. 10 of 2017 and are entitled to EOSB after completing one year of service.

7. Employer Obligations

Employers must:

  • Maintain accurate records of employees' salaries and service duration.
  • Ensure timely payment of EOSB to avoid disputes or penalties.
  • Contribute to alternative schemes (if applicable) in free zones like DIFC or ADGM.

8. Employee Rights

Employees should:

  • Review their employment contract to understand the terms related to EOSB.
  • Ensure that their basic salary is clearly defined, as this forms the basis for gratuity calculation.
  • Seek legal advice or file a complaint with MOHRE in case of disputes.

9. Dispute Resolution

If an employee does not receive their EOSB, they can:

  1. File a complaint with the Ministry of Human Resources and Emiratisation (MOHRE).
  2. If unresolved, escalate the matter to the Labour Court.

10. Key Updates and Trends

  • The UAE has introduced reforms to modernize labour laws, including the option for employers to adopt savings schemes as an alternative to gratuity payments.
  • The shift towards flexible work models (e.g., part-time, freelance) has led to pro-rata EOSB calculations becoming more common.

11. Practical Tips

  • For Employees: Keep a record of your employment history, including salary slips and contract terms, to ensure accurate EOSB calculations.
  • For Employers: Regularly update payroll systems to reflect changes in labour laws and ensure compliance with EOSB regulations.

By understanding the legal framework, calculation methods, and procedural requirements, both employees and employers can ensure a smooth and fair process for End of Service Benefits in the UAE.